The Bank Gives the Canadian Economy a Dose of Rate-Hike Medicine

The Bank of Canada raised the overnight policy rate by 25 basis points to 4.75%—the first hike since January—and left the door wide open for another hike in July. The press statement made sure there was no confusion about the rationale: “Based on the accumulation of evidence, Governing Council decided to increase the policy interest rate," citing "excess demand in the economy [that] looks to be more persistent than anticipated.”

And the Bank of Canada may not be done yet. We expect the Bank of Canada is likely to hike by another 25 basis points at its July meeting, as there probably won’t be a lot of progress made by that time. That will take the policy rate to 5%—its highest levels since 2001.